When a Bookkeeper Goes Rogue: How Small Business Owners Can Protect Themselves From Internal Fraud
As a business owner, you deserve to have a team you trust. When a bookkeeper uses their access to your business’s funds to defraud you, it’s not just a financial loss—it’s betrayal and the loss of confidence in your team. Furthermore, a bookkeeper’s rogue actions can put your business at risk of penalties and lawsuits if others’ funds are diverted. Discussing your next steps with a business litigation attorney is crucial if you want to protect your company.
When you’re facing issues that threaten your business’s stability and financial wellbeing, you need an experienced business litigation lawyer. That’s where Robin D. Perry, Esq. steps in to help. His work with corporate clients has led to seven-figure resolutions, making him uniquely qualified to handle your issues involving internal fraud. Call our business litigation law firm at 562-216-2944 to discuss your next steps right away.
Why Small Businesses Are Uniquely Vulnerable to Internal Fraud
Small businesses are often built on a foundation of trust and efficiency, and in many cases, owners are learning on the go. That means that systems don’t change until something goes wrong that forces the system to change—and unfortunately, it gives unethical individuals plenty of leeway. While large corporations have financial tasks split out to multiple people in order to prevent fraud and build in checks and balances, small businesses tend to condense these tasks. One person alone may handle invoices, payroll, bank access, tax filings, and tax payments.
That concentration of duties creates the opportunity to misuse and embezzle funds. It’s important to recognize that internal bookkeeping fraud isn’t necessarily a sign that a business owner was careless; it is often a sign that a business has grown quickly and its systems haven’t kept up. In these scenarios, it’s too easy for someone with ill intent to take advantage of a business owner who trusts and relies on them.
Common Ways Bookkeepers Commit Internal Fraud
There are numerous ways a bookkeeper may engage in internal fraud. You may need a business litigation lawyer if you believe that your bookkeeper is:
- Making unauthorized transfers or writing unauthorized checks
- Skimming cash from deposits
- Inflating invoices
- Paying fake vendors linked to them, either directly or indirectly
- Paying non-existent employees
- Misusing expense accounts and business credit cards
- Using funds intended for tax payments for other purposes
Bookkeepers who defraud their employers are also generally the ones who control the financial records and logs. This makes it easy for them to cover up their crime and avoid suspicion, especially if the owner is navigating a period of intense growth for the business or fully trusts the employee.
Red Flags to Watch Out For
No one wants to believe that they need a business litigation attorney or that they should distrust their employees. But a little bit of wariness can save your business. Watch out for these red flags:
- Consistently delayed or incomplete financial reports
- Resistance to audits, reviews, or oversight—for example, claiming that an outside audit would be a waste of money or that bringing on additional staff to handle bookkeeping tasks is unnecessary
- Unexplained cash flow problems, such as difficulty paying bills even though the business appears to be thriving
- Vendor complaints about unpaid invoices
- IRS notices indicating that your business is behind on taxes
- A bookkeeper who is quick to wave away any of these red flags as administrative errors
- Lifestyle changes or spending that does not line up with the employee’s income
Asking questions and digging deeper isn’t disrespectful to your employees. It’s part of protecting your investment and the business you’ve worked so hard to build.
What to Do If You’re a Victim of Fraud
If you believe that you are a victim of fraud, you must act quickly to preserve evidence, keep the perpetrator from destroying evidence or making funds untraceable, and get the help you need. Talking to a business litigation law firm may be your first step. They can help you take civil action to recover stolen funds and advise you on reporting the matter to the police for criminal charges. Avoid confronting the employee or suddenly making unexplainable changes to your system; this can trigger suspicion and result in the loss of evidence.
Contact Our Business Litigation Lawyers in California Now
Don’t let an unethical bookkeeper destroy the business you’ve built. Call us at 562-216-2944 or fill out our online contact form to plan your next steps with our team.
Attorney Robin D. Perry has been part of the Long Beach Community for over 25 years handling business litigation, employment litigation and advising, criminal defense, personal injury and code enforcement defense for businesses.
